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The Reserve Bank of India said that it expects the economy to recover by the end of the current fiscal year.
"Fuller recovery is likely to start taking shape towards the end of the fiscal year on the back of current steps to clear impediments that were stalling projects", the RBI said in its second quarter review for 2013-14 today.
The central bank stated that there could be modest improvement in growth in the second half of 2013-14 due to a rebound in agriculture and an improvement in exports. It said that demand remained weak in the economy on the back of deceleration in private consumption and fall in investment.
In the first quarter of 2013-14, the Gross Domestic Product (GDP) grew at a four-year low of 4.4%.
"However, a good monsoon and pick-up in exports, if sustained, could provide some momentum", the bank said. RBI emphasised that demand management is the key and requires balancing fiscal consolidation with investment support.
The central bank said that wholesale inflation will remain out of the RBI's comfort zone level of 5% during the second half of 2013-14 as well.
The Wholesale Price Index (WPI) - based inflation rose to seven-month high of 6.46% in September amidst high food inflation, especially onions.
"Monetary policy faces an unenviable task of anchoring inflation expectations, amid tepid growth and weak business confidence. It is, therefore, important to craft policy responses so that growth concerns are addressed in an environment of stable prices", the RBI said.
The RBI raised its optimism over the external sector and said that the Current Account Deficit (CAD) would remain moderate since the second quarter of 2013-14. "The trade balance has responded to the policy measures taken; exports have picked up and gold imports have declined", said the central bank.
The CAD widened to 4.9% of the GDP in the first quarter of the current financial year.
